A Longitudinal Study of Borrowing by Large American Corporations

Using models drawn from organizational theory and institutional economics, this paper examines the extent to which firms borrow money. We argue that corporate borrowing depends on four factors: the expected return on borrowing, the availability of internal funds, the strategic orientation of the chi...

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Bibliographic Details
Published in:Administrative science quarterly 1994-03, Vol.39 (1), p.118-140
Main Authors: Mizruchi, Mark S., Stearns, Linda Brewster
Format: Article
Language:English
Subjects:
Administrative science
Borrowing
Business structures
Capital costs
Capital management
Chief executive officers
Companies
Corporate finance
Corporations
Debt financing
Debt financing (Corporations)
Decision making
Discounted cash flow
Economic fluctuations
Economic theory
Economics
Finance
Financial institutions
Institutionalism
Investment strategies
Loans
Management
Manufacturing
Manufacturing Industries
Net present value
Organization theory
Profitability
Profits
R&D
Research & development
Research & development expenditures
Research (borrowing)
Retained earnings
Strategic planning
Studies
U.S.A
United States
United States of America
USA
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Summary:Using models drawn from organizational theory and institutional economics, this paper examines the extent to which firms borrow money. We argue that corporate borrowing depends on four factors: the expected return on borrowing, the availability of internal funds, the strategic orientation of the chief executive officer, and the firm's board composition. We formulate four hypotheses, which we test with data on 22 large U.S. manufacturing firms from 1956 through 1983. Retained earnings, the expected return on borrowing, the presence of a representative of a financial institution on the firm's board of directors, and the presence of a CEO from a finance background are all associated with the level of borrowing. The findings suggest that both economic and organizational factors affect the extent to which firms borrow.
ISSN:0001-8392
1930-3815
DOI:10.2307/2393496